Future of Healthcare IT Outsourcing

The emergence of several large and small players across the world that are able to provide cheaper labour needs to be watched

As the future of outsourcing changes, the healthcare industry in the developing world is bound to adapt to those changes. Some of the key factors that drive outsourcing in the future would centre on demographics, education, labour mobility and healthcare and immigration reform in developed economies.

One of the challenges that US, Europe Japan and China face today is the changing demographics, especially the increase in the greying population. To maintain an aging population, these economies need a critical mass of young educated work force. The critical question then becomes, where is this educated talent pool?

IT Demand & Supply

According to new data from the Computing Research Association, (an association of more than 200 North American academic departments of computer science, computer engineering, and related fields) in the fall of 2006, new computer science enrollments were at 7,840 and new enrollments are at 7,915 for the fall of 2007. Compare this with India and the contrast is stark.

As per NASSCOM (India’s National Association of Software and Services Companies) India produced 5,75,000 engineers in 2007, of which 1,93,000 were Computer Science graduates. Despite debates on quality of the education in India, and the percentage of these engineers that are really employable, the sheer numbers point to the magnitude of the talent gap.

The professional services sector in the US is expected to create five million jobs by 2016- a growth of 16.7 per cent. Computer and mathematical science occupations are projected to add 8,22,000 jobs by 2016, at 24.8 percent growth- the fastest growing segment among professional subgroups. Though IT services have been hit by the recession, the impact has been lesser (so far) compared to other sectors. Overall, payrolls in US shrunk in January 2009, by 5, 98,000. Retailers eliminated 45,000 jobs following the worst holiday shopping season in memory. The manufacturing sector shed 2, 07,000 jobs, construction lost 1, 11,000 and temporary help industry lost 76,000.

Talent War: Create V/s Import?

Of course, the economy has to create jobs. However, a critical mass of educated workforce is also required to take on those jobs. In the US alone, there is a shortage of 40,000 healthcare IT professionals and a projected shortage of 75,000 physicians and 5,00,000 nurses by 2020. Making college education affordable is a basic first step towards creating this talent pool. It is heartening to note that several Ivy League Universities in the US have stepped up to provide various financial incentives to attract lower income students. However, if generating homegrown talent is not working well, then the immigration policy has to be streamlined to facilitate smoother flow of labour to the US.

Immigration and Healthcare Reform

A comprehensive immi-gration reform has to be taken up that addresses the talent shortage in the country. Though providing H1 visas to Indian professionals is seen as a carrot by the US policy makers and diplomats in trade negotiations with India, studies by National Foundation for American Policy state that each H1B visa provided actually creates five additional jobs in the US economy.

The investment in IT infrastructure across the world has provided a disruptive benefit to the global economy. Medical tourism, though in its infancy, is an indication that services (read surgery) can travel to where talent resides, even in healthcare.

Europe and Australia are attempting to attract Indian talent with various immigration programmes to fast track their economies. Though the US continues to be the destination of choice for most immigrants, several first generation immigrants from emerging economies are making a beeline to return to their home countries to be part of the exciting growth stories there. The shape and form of immigration system in the US/ Europe will have to change dramatically to retain talent. For the US employers, the rising cost of healthcare adds to the cost of labour. Major policy initiatives are required to address the escalating healthcare costs, which contribute to offshoring of jobs.

Healthcare IT Pie: MNCs V/s Indian Vendors

In the US, IT market is set to grow drastically, with a $19 billion investment into the sector as part of the US recovery plan which will be signed by the President shortly. However, the Indian IT vendors may not be in a good position to leverage the growth in this market as most vendors have not made the right preparations/investments to address this market. The global healthcare-IT market is cornered by IBM, CSC, Accenture and Perot Systems (who employ about 1,00,000 professionals in India).

In the last few years, MNCs/ IT firms have made very good progress in ramping up their offshore capabilities. On the other hand, Indian vendors have made very little progress in moving up the value chain or cutting into the integrated service offerings that the MNCs are able to provide. Indian vendors may lose out if they do not make the investments necessary to move to the next level.

Challenges

The recent 26/ 11 Mumbai incident, though isolated, pointed to the security risk situation that prevails in India. Though the IT industry grew in India despite the political system, India Inc has come to an inflection point, where the political will to address a host of infrastructure, security and social challenges is critical for the industry move to the next level.

One of the other elements which could rock the boat is vagaries of the dollar and what it could do to the cost arbitrage. I hope that IT vendors have analysed the risk with a falling dollar, in the context of high inflation in the US, which may follow the injection of trillions of dollars into the US economy.

Corporate governance will continue to play a role in the future of outsourcing, as the recent scam at a top five Indian outsourcer reminds us. The emergence of several large and small players across the world that are able to provide cheaper labour needs to be watched as well. Though these players may not be able to build this kind of scale but they could develop niche skills that eat into the total outsourcing pie.

India Inc V/s the Indian Professional

Irrespective of the fate of Indian IT vendors, or India as an offshore IT destination, Indian professionals will continue to be in demand as they continue to fill up the jobs vacated by greying population across the world. Indian professionals may travel to where the jobs are, or the jobs may travel to where the Indian professional is located. In the future of outsourcing, demographic stars seem to be aligned in favour of the ubiquitous Indian professional—a sort of ‘micro-outsourcing’, shall we say?

The writer is Consulting Partner, Healthcare Practice of a multinational consulting orgnanisation
saji.salam@cognizant.com

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